标题: Increased int exp, effect on FCFF? [打印本页] 作者: BC_MBA_student 时间: 2011-7-13 16:17 标题: Increased int exp, effect on FCFF?
Thought this would increase FCFF since you're adding back a greater amount, but no effect per CFA text. Thanks.作者: maryli 时间: 2011-7-13 16:17
FCFF is Free Cash Flow to Firm
It's the cash generation BEFORE any financing decisions. That is why you add back Interest because you want to know how much casn generation occurred even before the bond holders get paid interest.作者: Newhuman 时间: 2011-7-13 16:17
I suggest the best way to start looking at FCFF or FCFE through the EBIT formula.
FCFF = EBIT(1-t) + Dep - INVwc - INVcapex
Theoretically, FCFF should not change as an increase in Interest expense is simply eating away from NI, or equity. As such, FCFF should not change.
Hope this helps!作者: 19831985 时间: 2011-7-13 16:17
The effect on fcfe is more likely to be asked.
You'd have to factor in net borrowing to and where the increase in interest came from.作者: giants2010 时间: 2011-7-13 16:17
jgrandits Wrote:
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> But due to the tax shield wouldn't some of the
> additional interest exp flow back to the firm?
NI = (Sales - COGS - int) (1-t)
NI = (Sales - COGS) (1-t) - int * (1-t)
Then FCFF = NI + int(1-t) + ...
FCFF = (Sales - COGS) (1-t) - int * (1-t) + int(1-t)
so you see you are subtracting after-tax interest then adding it back, so if you increase int exp or not, it doesn't matter.
